Commonwealth Bank becomes last of the big four to lift rates on interest-only loans

Commonwealth Bank has joined the ranks of Westpac, NAB and ANZ by hiking up rates for customers who opt for interest-only repayments.

CBA moved to increase the current rate of 5.94 percent pa on interest-only loans to 6.24 percent pa this morning.

Based on a $350,000 loan over 30 years, investors making interest-only repayments will be slugged an extra $1044 a year.

But it wasn't all bad news – in a bid to reduce riskier lending Commonwealth also announced it would drop interest rates for owner-occupiers. The current rate of 5.25 percent per annum would drop to 5.22 percent per annum as of July 7.

Based on the same $350,000 loan, that means owner-occupiers would save roughly $84 a year.

Commbank executive Matt Comyn said that the rate changes would help the bank maintain its reputation in the eyes of regulators.

"Paying off your home is important for Australians. For owner-occupier customers repaying principal and interest, they can take advantage of the interest rate reduction to pay off their home loan faster," said Comyn.

"These changes also help us keep the right balance in our home loan portfolio, in line with what our regulators require."

RateCity.com.au CEO Paul Marshall says that the banks are moving quickly to dissuade Australians from taking out interest-only loans.

"The big banks have unanimously decided to hike rates for both new and existing customers despite the fact APRA’s most recent cap on interest-only was for new lending," said Marshall.

"If you’re an investor who wants to keep paying interest-only, your only reprieve from relatively high rates will be switching to a smaller lender.

"Right now there are still a couple of investor rates offering interest-only terms under 4 per cent, but they’re earmarked as dying breed."